Monday, October 11, 2010

The World is Round, so the Arguments are Circular

Instead of quietly meditating over the true meaning of Columbus Day with their families and loved ones, several members of Council are exploiting today's holiday in gross spectacles of financial and political strategery.

Ricky Burgesstossed a new concept onto the table: lease the parking spaces as read, plow the whole overage into the pension fund, and then have the state assume pensions management anyway. Getting involved with PMRS and Act 44 with higher pension funding levels at the outset would significantly mitigate the necessary cost increases.

This may be the most excruciatingly responsible plan long-term -- but it also makes the state takeover appear presently ascendant as the most likely outcome, and the parking lease appear a bit in jeopardy by comparison. And please note that calling this the most "responsible" plan does not make it remotely likely, as it serves up what some will consider to be the double indignity of sacrificing the City's grip over both functions at once.

Meanwhile, Bill Peduto held a press conference touting the merits of the state takeover via Act 44 even under the City's present, low-riding pension funding levels -- apparently without yet having received any details back from the state pursuant to that absolutely crucial information just delivered to it on Friday.

Mr. Peduto said the city could meet higher payments, whatever they may be, with increases in parking rates, permits and "five or six other small menu items." (P-G, Joe Smydo)

Also, I need to point this out, because I feel aspects of the spin are starting to resememble Reconnect the Historic Street Grid Between Downtown and the Hill proportions:

Mr. Peduto said there's no need to bring in a "middle man" such as the J.P. Morgan-LAZ partnership and give up the $2.4 billion in revenues that a council study estimated that the parking garages and meters will generate over the next 50 years. (ibid)

* - NUMBER ONE: Those $2.4 billion in "lost revenues" we keep hearing about will be substantially offset by these other things called "expenditures": including management, salaries & benefits, facilities maintenance, insurance etc. The City would be shedding its responsibility to provide those, meaning any suggestion of "sacrificing" a straight 2.4 big-big-big ones is somewhat daft.** - NUMBER TWO: The $2.4 billion in projected gross revenue is what would occur if the City also set all rates exactly as high as under the lease. To date, those Councilors warning of a "sacrifice" of $2.4 billion are the same who most vocally decry the exorbitant (market-based) rates appearing in the lease. So after subtracting some revenue for continuing parking subsidies and ultimately more revenue for facilities maintenance, how much generated revenue is really being sacrificed? *** - NUMBER THREE: Even after that coarse arithmetic is accounted for, if you believe the glorious Pittsburgh Parking Authority can ever be constituted to actualize similar operational efficiencies to a privately run parking business, maybe the City should invest in owning some Quizno's and Bally's Total Fitness franchises, because apparently you think city government is capable of the shrewd, nimble, and at-times cutthroat management and tactics of the outside world.

*-CORRECTION: According to pages 23-28 of the FSG study, the garages and the meters combined may in fact generate net revenue (or in their words, "Free Cash Flow") of a hedged, approximate $2.35 billion. The Comet regrets the error and the accompanying sarcastic tone in Number One above. Numbers Two and Three still hold if we're suggesting sacrificed revenue under a lease deal, and implicitly, getting to enjoy anything like it under the alternatives.

[breath]

None of which is to suggest that opting for the state takeover is a ridiculous idea. I just can't abide a crooked picture frame, or crooked picture framing.

AND FINALLY...

Council President Darlene Harris has proposed that the city float a pension bond -- backed by parking rate increases -- to boost the pension fund. Mr. Lamb has floated his own plan that would require the parking authority to float a bond issue, also backed by parking rate increases, to help out the pension fund. (P-G, Joe Smydo)

These plans would have the City dodge a state takeover this year by borrowing just enough money (along with some real parking rate increases) to reach the necessary level of funding, without seeming to provide any potential for avoiding the same outcome in 2013.

City Controller Michael Lamb said details will be provided this week. (ibid)

If Mayor Ravenstahl had said something similar at this point, we would have merrily canceled for him his return flight from Shanghai.

The state takeover may well turn out to be more than acceptable; the big lease is not a bad deal if you are in to that kind of thing; and doing both together could potentially provide some hard-earned advantages as well. We've yet to learn of any similarly convincing reasons to pursue the Scrape and Borrow method, so logic dictates it's pretty close to being bounced from the bracket.

*-UPDATE: You know -- I should have known -- I could be speaking too soon. Logic may not dictate anything.

Pursuant to what was said at a public hearing this evening, the City could very well settle on an answer only to the narrow question "How do I get through the next couple of months?" ... one which involves inviting the Parking Authority to take on a great burden of debt in addition to the debt it already carries (which it may well refuse to do) or asking the City to do the same (which its Mayor has explicitly and frequently promised the voters to refuse to do) ... one which delays a state takeover through PMRS (which may not be so bad unless you personally enjoy exercising what would be PMRS's discretion to invest funds) but only for a couple years until the same specters of a state takeover are likely to arise again, that is unless parking rates are raised to about the same levels we are presently bemoaning (only in exchange for lesser and slower returns). And that money we scrape and borrow together will be immediately deposited into the sinking pension fund (a la Mayor Murphy in 1998) and invested on Wall Street -- which some warn darkly is unwise and dangerous as a part of the Mayor's plan -- but is just fine if it is gathered dearly from other sources.

All because, when you tear away the bunting, some members have a deep and abiding faith that the infrastructure lease must be a dirty pay-to-play swindle despite a comprehensive lack of evidence, and/or that keeping all things which are run by City government City-government run forever is always preferable even while the economic advantages of doing so are vanishing before our very eyes. In other words, CHANGE IS TERRIFYING.

15 comments:

No, not all change is dreadful and suspect. -Following Chicago's lead is suspect.-JP Morgan is suspect.-Morgan Stanley is suspect -The Ravenstahl Admin is suspect.-Ravenstahl's advisors are suspect. -Placing public assets in private hands is suspect.-Tripling parking rates is key business districts is suspect.-The idea that the Big lease will solve anything is suspect.

Add all those factors (and others) together and you get and you get a dreadful deal.

Every other possibility we're discussing involves raising parking rates significantly. None of them have shown yet by how much, particularly when we hit 2013 and 2015, which is after all only when the lease's hikes fully take effect.

-Following Chicago's lead is suspect.-JP Morgan is suspect.-Morgan Stanley is suspect

Put that all together, and it sounds xenophobic, parochial and anti-modern. Which is precisely what I'm getting at.

Chicago is a truly world-class juggernaut. The co-leader of the free world just resigned to try and become Mayor of Chicago. If we corrected the transparency issues surrounding the Chicago lease (much to our mayor's disadvantage right now), should we really fear advancing on the path Chicago has blazed and strengthening our ties with that city so much?

Sorry 'bout that. I generally allow myself to quietly edit for style alone within the first few hours or until the first comment hits. Looks like you were penning that comment while I was still rolling with "CHANGE IS DREADFUL AND SUSPECT" in the post.

Actually, under the lease the contract would be in control. Hate the lease as much as you desire, but LAZ Morgan Draper Pryce can't turn around and make things worse on us. Not so for PMRS and the state. (If the state won't guarantee a granite payment schedule for 30 years, we can always accuse them of using "weasel words" and refuse to deal with them unless they sign and notarize something. Right?)

Not faulting the takeover plan, but hasn't the state generally sided against Pittsburgh and with the Universities/non profits/suburbs whenever possible? I'm concerned that more state control means less of a chance to include these groups that share the city's resources in also sharing the cost.

The same darn study figured out the present value of those revenues and came up with $400 million, well less than the lease offer. It really is scandalous people are throwing around the $2.4 billion number as if they didn't know any better.

And not only does realizing those revenues require raising rates, it requires making all those capital investments in the assets. A plan for which has yet to be forthcoming.

Oh, and as I have pointed out before, ALL the various plans involve the City getting in bed with the likes of JP Morgan. Who the heck do people think are the players in the municipal bond world?

So yes, this is a clear case of status quo bias. If the status quo was that the City had no parking assets to play with, would people really be supporting a plan to take $300+ million OUT of the pension fund, borrow ANOTHER $100 million, commit to finding hundreds of millions more in capital expenditures, and use all of that money to buy up and improve a bunch of private parking assets in the City?

"I'm concerned that more state control means less of a chance to include these groups that share the city's resources in also sharing the cost."

You are right about what the state has done in the past, but unfortunately that just proves the state really is in control no matter what happens.

Maybe as a matter of political calculation, you could conclude you would get more help from the state if the funding levels remained lower. On the other hand, you might calculate the exact opposite conclusion, particularly with a state takeover of fund management as well.

Personally, I have no idea. I suppose we should be asking the typical anti-City Pennsylvanian voter which would make them cringe more.

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